T-bill auctions slump as State agencies stay off

Demand for government short-term debt has plummeted to fresh lows in the wake of reduced parastatals participation amid a tap sale of a 10-year bond.

Central Bank of Kenya (CBK), the fiscal agent in the debt markets, received bids worth Sh8.35 billion against Sh24 billion it offered to investors, an equivalent of 34.81 percent uptake.

The subscription for the Treasury bills was a further drop from 56.19 percent and 57.69 percent subscription in the previous two weeks respectively.

The reopened 10-year bond, which targeted Sh21.65 billion but received just Sh8.11 billion (37.47 percent subscription) at an average interest of 12.28 percent, also offered competition for the T-bills sale.

“The tap sale might have diverted some of the investors to go for the longer-term paper and there may also have been an apathy by State corporations following that circular for them not to participate in the T-bills market,” Churchill Ogutu, a senior research analyst at Genghis Capital said.

The CBK, however, rejected Sh3.36 billion or 40.26 percent of bids by return-chasing investors during an auction last Thursday that it deemed expensive.

“CBK is sending a signal that it would like to see a gradual movement in the yield and also cemented to that fact is that there was a 50-basis cut on CBR (Central Bank Rate),” Mr Ogutu said. “Therefore, signalling it would want a gradual increase in interest rate rather than a sporadic movement.”

Liquidity during the week tightened with interbank rate — the rate at which banks lend to each other — hitting 5.05 percent, the highest since November 5. This came at a time banks are consolidating books ahead of the end of the financial year in December, that sometimes results in low liquidity.

During the auction, demand for the 91-day paper plunged to 23.42 percent of the Sh4 billion weekly quantum from last week’s 92.86 percent subscription. Average interest for the benchmark note edged up marginally to 7.16 percent from 7.13 percent a week earlier, with the CBK accepting less than half (Sh445.55 million) of the Sh936.76 million in bids.